Friday, September 24, 2010

Energy sector has a potential to drown Pakistan

Last oil price hike was among one of the major factors of devastating Pakistan's economy.What will another hike do is any body's guess.Great risk lies in there.Our dependence on oil is increasing despite such impending and known risk.Almost all power plants that have come on stream recently run on oil;more are to come.Domestic oil production is not increasing,despite some potential.Gas production is going down and in the process of being used up.New exploration and discoveries are hampered due to political and law and order problems in Balochistan and elsewhere.Despite Balochistan package and other palliatives and offers.political situation in Balochistan has only worsened.And do not think that only military can solve this problem.It can only make it worse.

There is no serious break through on Thar Coal despite great potential.It is difficult to imagine for outsiders like us as to what stalls progress on Thar coal.Probably Sindh has overplayed its card of provincial autonomy assuming exclusive control over an issue that has many interfaces.And now it is appearing to come close to a failure.Some new initiative is required to cause a breakthrough.Now floods would be a good excuse for every inefficient entity to hide under its cover.On the other hand federal bureaucracy,barring some settlement on "joint development", seems to be searching for options except Thar coal.Chinese have been prevailed to supply more nuclear reactors,which are three times more expensive in capital costs and associated with many other hurdles and political difficulties.We must be clear in our minds that only Chinese can possibly develop Thar coal in the remote and scorching heat of Thar desert.No other country or company can handle the risks involved in this size of the project.You can sign nth MOUs ,nothing would happen.As a token World Bank has withdrawn support among criticism of financing dirty coal.I hope we manage to put our act together before it is too late and financing coal is stopped altogether in the nearing prospects of solar power.The solution may lie in awarding a 5000 MW project to Chinese to include all the infrastructure development costs.Chinese may agree to it on suitable terms.

I heard a Sindhi nationalist leader spitting venom on hydel power and Kalabagh dam,despite being drowned in flood water.What more rationale and justification can be given of excess water to be stored in dams than these horrific floods in which 45 MAF(million acre feet) of water has overflown in a few days as opposed to a normal flow of 100 MAF over the entire year.The combined storage of all the dams proposed to be built is smaller than this flow.It is hoped that barring these Abujehls people in Sindh in general are not going to block dams any further.If they do they would be drowned again and again and resultantly the whole of Pakistan.Dams have long been used throughout to store water and prevent floods.Americans,Chinese,Brazilians ,Indians and others have done it successfully.There is no colonialism about it.Let us hope that sense prevails ultimately.

And now the pricing.GOP has been subsidising electricity amounting to Rs !50 billion per year.It has not been able to pay it however ,along with the non-payment of electricity bills by the provincial governments.This has given rise to circular debt of Rs 200 billion.It does not get paid off ,as more amount is added to it successively.And IMF is also requiring to do away with these subsidies.If these subsidies are withdrawn,along with the uniform subsidized tarriff,electricity rates in Sindh,KP and Balochistan would increase.In Punjab electricity rates are expected to go down? Why? Is it another so called" machination from Punjab" as many nationalists would be akin to term it? Not really.the story is as follows.About 25 % of electricity is lost in T&D losses, a large part of it is theft.This T&D loss(theft mostly) is not uniform through out Pakistan.In Punjab,it is the lowest around12% in northern and central Punjab and 15% in southern Punjab.Everywhere else,these losses are in the range of 35-45%.Currently these excessive losses are hidden and averaged out in uniform tariff.Without electricity subsidy borne out by the GOP,every province and user would pay for its losses.Thus Punjab having lesser losses would end up in lower tariff and the opposite will happen to the users elsewhere.

As it is electricity is expensive and kind of unaffordable for most of the people and even businesses,a pandora box will open up.The issue may not end up in terms of the aforementioned cool and cold logic.The issue is far more complicated.KP will argue that you take away our(it is not theirs' solely) cheap hydro electricity at one Rupee a unit and sell it back to us at 6-7 Rupees.In Balochistan cost of gas fired electricity is Rupees 4 per unit and similarly Sindh produces a lot of gas for electricity production.What is the way out?Balochistan's consumption is quite low and could be jangled in a variety of ways.In Sindh ,problems would be further compounded due to KESC vs rest of Sindh.More thinking is required on this.

However KP issue can be at least partly resolved by resolving the Hydel Profit/Royalty of Tarbela Dam produced electricity.No permanent solution has been implemented.Despite practical suggestions proposed by this scribe some 18 months back.My suggestion is simple.Give 12% of Tarbela generated electricity to KP free as royalty or alternatively pay 12% royalty at CPPA whole sale price.Both are more or less equivalent,transparent and simple to understand and not mired by the complicated calculations of AGN Kazi.It is being done in India, a country not disliked by Sarhadi Gandhi to say the least?Elsewhere the royalties are lesser.This maximum should be acceptable to the government of KP and even the other distractors.A n early decision should be made in this respect in consultation with the stakeholders.These royalties should go towards adjustments of tariff increases.I would tend to support 12% free electricity which has a larger public appeal and would be politically attractive.

Finally energy conservation and efficiency issues should receive government support and attention.A unit saved is a unit produced and even worth more due to environmental reasons.In order to remain out of technical complexity,let me propose here to reduce the demand of air-conditioning to a more acceptable level. Two or even three piece suits have become unduly popular in Pakistan government and business circles, requiring chilling while the outside temperature may be 45 degree C or more.This is awfully expensive.Instead Bu-shirts should be promoted,as one Japanese P.M.reportedly proposed for his country in the context of rising cost of energy.GOP has already taken steps towards reducing Ac loads.More should be done.How about reverting back to Kurta Shalwar ala-Zia period.I am not a Zia supporter as is widely known,but would not mind adopting and proposing better policies.